Vol. 7, No. 3, May 2007, pp.

201–222
issn 1532-0545
07
0703
0201 informs ®

doi 10.1287/ited.7.3.201
I N F O R M S © 2007 INFORMS

Transactions on Education

A Simulation Exercise to Illustrate the Impact of

an Enterprise System on a Service Supply Chain

James L. Ritchie-Dunham
Psychology Department, Harvard University, Cambridge, Massachusetts 02138,
jimrd@instituteforstrategicclarity.org

Douglas J. Morrice, Edward G. Anderson, Jr., James S. Dyer

Department of Information, Risk, and Operations Management, Red McCombs School of Business,
The University of Texas at Austin, Austin, Texas 78712 {morrice@mail.utexas.edu,
Edward.Anderson@mccombs.utexas.edu, Jim.Dyer@mccombs.utexas.edu}

I n this paper, we present a computer-based simulation exercise designed to help students understand the
impact of an enterprise system on business performance in a service supply chain. The particular service
supply chain simulated in the exercise is a wireless telecommunications firm. In this exercise, students perform
simulations to experience managing the supply chain of the telecommunications firm with and without an
enterprise system. The simulator tracks their business performance. Then the results are used as the basis of
discussion in a subsequent debriefing session. We describe the educational goals of the simulation exercise
and how the exercise can be structured in order to achieve these goals. The latter is illustrated by the use of
the simulation exercise in a master’s level supply chain management course in the Red McCombs School of
Business at the University of Texas at Austin. The simulator includes realistic details. In fact, it is based on
the extensive consulting experiences of the first author with two North American telecommunications firms.
We describe the simulator in detail under the various scenarios, explain how it was validated, and provide the
simulator equations in system dynamics format in Appendix B.

1. Introduction system on business performance in a service sup-

Most large organizations have implemented or are
considering implementing some form of an enterprise-
wide information system (ES). Proponents of these
ESs suggest they provide many benefits over the
legacy systems they replace, such as better systems
integration, standardization of data and processes,
end user visibility across the business enterprise, and
improved decision support functionality (Davenport
2000, Ettlie 2000, Gattiker and Goodhue 2000, Mabert
et al. 2000, McAfee 2000). ESs cost millions of dollars
and take many months to implement fully (O’Leary
2000). Thus, when evaluating different ESs, decision
makers need to understand the potential benefits and
costs. In practice, quantifying the impact of an ES
(both costs and benefits) may be difficult due to lack
of good benchmarking data and the challenge of iso-
lating the impact of an ES from other potentially con-
founding factors.
This paper describes a computer-based simulation
exercise designed to teach students about the poten-
tial impact of a successfully implemented enterprise
201
ply chain. The system dynamics simulator allows
students to experience the value added by running
the supply chain of a wireless telecommunications
firm under two different scenarios: with and with-
out an ES. The simulator tracks the performance of
decision-makers as they manage the supply chain
of the simulated telecommunication firm under one
of the aforementioned scenarios. Thus, this exercise
isolates the impact of an ES implementation. The
results from these exercises are compared to determine
whether or not the proposed ES benefits influence the
bottom line under the use of a typical manager. It
is not always clear if an ES will help managers run
dynamically complex systems (Sharda et al. 1988).
Therefore, besides providing a hands-on management
training experience, this exercise also provides an
opportunity for a rich discussion of the issues with
which companies, the academic literature, and the
popular press are wrestling. A paper containing a
preliminary proposal for this simulation exercise was
 Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
202
presented at the 2000 Winter Simulation Conference
(Ritchie-Dunham et al. 2000).
We have designed the simulation exercise to be a
three to six-hour self-contained module that can be
used as part of a longer course in supply chain man-
agement or information management, or as a stand-
alone executive education short course. In §5, we
demonstrate its use over two 75-minute sessions in a
master’s level supply chain management class in the
Red McCombs School of Business at the University
of Texas at Austin. The students performed the sim-
ulation in the first session. The second session was
spent discussing the simulation results and how these
results related to actual company experiences and to
those studied in the academic literature.
We selected a service sector firm, in particular,
a wireless telecommunications firm, as the basis for
this simulation exercise for four reasons. First, our
students and corporate partners have requested more
service sector related exercises be added to our cur-
riculum (Anderson and Morrice 2000) because the
majority of our graduates find employment in the
service sector. Second, games and other exercises
are more common for physical goods supply chains
(Littlefield Technologies, Bates 2002; e.g. The MIT
Beer Distribution Game, Senge 1990). Third, wire-
less telecommunications is a business with which the
students can easily identify. They find the applica-
tion area interesting making it easier to motivate the
exercise. While there is the potential downside that
this specific example might provide a narrow expe-
rience for the students, we do not believe this to
be the case because the simulator contains elements
(both financial and operational) common to firms
in many other industries, such as those involved in
other aspects of information technology services, con-
sulting, retail services, third party logistics, and call
centers.
The final reason for selecting a wireless telecom-
munications firm as the case example is that the
first author has extensive consulting experience in the
telecommunications industry. In fact, the simulator is
based on system dynamics simulation models devel-
oped and used for strategic policy analysis at two
North American telecommunications firms. It is well
validated, comprehensive, and easy to understand
(see Appendix B for simulator equations).
Throughout the paper we often use the term ES
synonymously with Enterprise Resource Planning
(ERP) systems especially when citing some of the
more recent academic literature. We have consciously
decided to use ES because we think it is more general
than a specific business term used in current prac-
tice (namely, ERP). Additionally, we believe that the
significance and purpose of our simulation exercise
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
transcends the current issue of implementing Enter-
prise Resource Planning (ERP) systems. The business
value of information technology to the enterprise has
been a topic of interest in the literature for the last
15–20 years with more recent literature focusing on
the value of specific applications such as ERP sys-
tems (Hitt et al. 2002). Based on the results of the
study by Akkermans et al. (2003), this topic is likely
to be of continuing interest to business executives and
academics for some time into the future especially in
specific application areas such as supply chain man-
agement. Therefore, the overall worth of this exercise
is to help students understand the impact of the afore-
mentioned principles of integration, standardization,
visibility, and improved decision support on business
performance in service supply chains.
It is important to note that the simulation exer-
cise does not include all the details and complexities
involved in implementing an ES. These are accounted
for in the simulator by ES implementation costs. This
was done to simplify the exercise and narrow the
focus down to exploring the potential benefits of a
successful ES implementation. In other words, the
exercise focuses on before and after the ES implemen-
tation but not the transition between these two states.
It is our experience that such focusing is necessary
in order to mitigate the risk of making the exercise
too complex to yield any meaningful results. To pro-
vide a proper context for the students and balance the
discussion, we emphasize to them that they should
view the results of this exercise as the potential for
ES implementation at its best. Then we discuss case
studies and other literature illustrating ES implemen-
tations that have been costly and challenging (Griffith
et al. 1999, Hong and Kim 2002, Songini 2004). The
latter serves as a launch pad for a discussion on what
factors can lead to a successful ES implementation.
The rest of the paper is organized in the follow-
ing manner. Section 2 details the nature of opera-
tions of a wireless telecommunications firm and how
the system dynamics simulator captures that nature.
Section 3 presents the enterprise systems. Section 4
outlines the validation of the simulator. Section 5
provides an example of the simulation exercise con-
ducted with master’s students at the University of
Texas at Austin. Section 6 contains a concluding
discussion.
2. The Wireless Telecommunications
Simulator
The simulator presented here was abstracted from a
more complex system dynamics simulator that was
developed by one of the authors and used by two
national telecommunication firms for strategic deci-
sion making. The original simulator was simplified
Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
to make it easier for subjects to control during the
experiment. Both the original and simplified simula-
tors were developed with experts in wireless telecom-
munications and supply chains (see Appendix A). The
simulator parameters were then scaled to protect the
confidentiality of the telecommunications firms. This
scaling did not affect the dynamics of the simulator.
2.1. Wireless Telecommunications Operations
We briefly describe how wireless telecommunications
work and how a telecommunications firm provides
wireless services. The principles of wireless telecom-
munications are straightforward. A person uses her
cell phone, which acts as a radio transceiver, to con-
nect to a nearby base station (see Figure 1). To ensure
constant and continuous cell phone coverage while
the user is moving, the base stations form a network
of overlapping cells. These base stations manage,
send, and receive signals from the cell phones in
its geographic area to a mobile telecommunications
switching office (MTSO). The MTSO places calls from
land-based telephones to wireless customers, switches
calls between base stations as the cell phone travels
across cell boundaries, and authenticates wireless
customers before they make calls. Additionally, the
MTSO connects the network to public networks such
as Southwestern Bell and other cellular networks,
which connect with land-based phones. A cellular
network is constructed in stages by adding more base
stations to increase network coverage and quality.
Figure 2 summarizes how a telecommunications
firm provides wireless services, as modeled in the sim-
ulator. Starting in the lower-left corner, the firm makes
Investment Decisions that allocate financial resources
to: (1) Infrastructure (base stations), (2) Human
Resources (training and hiring people), and (3) the
Service Supporting Information Technology (to sup-
port call center services). These three resources influ-
ence different dimensions of Customer Satisfaction,
which influences the number of customers in the Cus-
tomer Base and impacts the organization’s Financials.
The Financials influence further investment decisions
and the cycle repeats itself.
Figure 1 Overview of How Wireless Telecommunications Work
203
The simulator incorporates external and internal
components of the firm’s supply chain, as denoted by
boxes in Figure 2. External components include the
suppliers (within Infrastructure) and the Customer
Base. Internal components include Human Resources,
Infrastructure, Service Supporting Information Tech-
nology, and Financials. This section briefly explains
the model logic. Appendix B provides a full descrip-
tion of the simulator’s equations, ordered by the
boxed components in Figure 2.
2.2. External Components
In the Infrastructure component of the supply chain,
as expressed in the simulator (see Figure 3), the firm
places orders for base stations with the suppliers. The
monthly ordering capacity is based on the annual
budget for base stations and their average cost. Since
the firm competes with other firms also installing
base stations, the suppliers’ daily building capacity
available to the firm is a function of the supplier’s
annual building capacity and the firm’s market share.
This supplier building capacity is a function of its
initial building capacity, its growth due to changes
in our firm’s demand, and its growth due to over-
all demand, the latter being a function of growth in
the population demanding wireless services and mar-
ket share. The supplier’s growth in building capacity
is moderated by its growth response time—how long
it takes to shift its capacity once it sees a shift in
demand. The building of base stations converts them
from Capacity in Process to Base Stations, which are
in service. The base station turn around is a ratio
of the capacity in process and the rate of building
base stations with a lower bound constraint on min-
imum construction time. After an average life, the
Base Stations are retired. The number of Base Sta-
tions and their daily capacity determines the Network
Daily Capacity. Capacity Utilization is then a func-
tion of this Daily Capacity and the Total Daily Usage,
which is a function of the number of Customers and
their average usage. Capacity Utilization influences
Network Quality, which influences the Customers’
Perceived Call Quality (see Customer Satisfaction
component of Figure 3). The other component of per-
ceived call quality is Network Coverage, which is a
ratio of the number of active Base Stations and the
number of base stations required to cover 100% of the
population.
On the other end of the supply chain, in the Cus-
tomer Satisfaction component, the firm provides ser-
vices to customers for a fee. Satisfaction is measured
as a utility function of the price paid for a perceived
level of call quality and customer service, relative to
both the competitive offering in the marketplace and
the customer’s disposable income dedicated to wire-
less telecommunication services. Each of the factors
 Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
204
Figure 2 Overview of How a Telecommunications Firm Is Setup to Provide Wireless Services
that determine customer satisfaction is determined
endogenously, as explained in the following section.
The firm’s retention rate is the ratio of customer sat-
isfaction to the competiton’s customer satisfaction.
In the Customer Base component, the rate at which
customers are gained from or lost to the competi-
tion is a function of the retention rate and the cus-
tomer’s delay in acting i.e., how long it takes them
to respond to changes in relative customer satisfac-
tion based on experiences and contracts (see Figure 3).
The firm gains new customers as a product of the
number of new users added to the population in each
time period and the firm’s new user market share.
The population of wireless customers is assumed to
grow at a constant rate over the seven-year simula-
tion period, with the customer’s average disposable
income for wireless services held constant.
2.3. Internal Components
The Human Resources component describes the
dynamics of human resource skills as employees are
hired or fired, and as they are trained or their skills
are made obsolete by changing technologies (see Fig-
ure 4). Employees have either relevant skills or obso-
lete skills. Relevant Skilled People are hired into
the firm and may leave the firm by attrition or by
downsizing. They also convert to Obsolete Skilled
People when their skills become obsolete, which is
a function of the Industry Technology Change Rate.
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
As Obsolete Skilled People, they leave by attrition or
by downsizing, or they are trained to become Rele-
vant Skilled People. The rate of people being trained
is influenced by training effectiveness, which is a
function of the training budget per employee with
obsolete skills, as benchmarked against industry stan-
dards. Training effectiveness is also influenced by
HR’s ability to effectively schedule the right training
when needed by the right people. The HR Service
Index, a determinant of perceived Customer Service
(in Figure 3), is a function of the actual customer to
employee ratio and the benchmark service level that
can be provided at different ratios of customers to
employees.
The Service Supporting Information Technology
component depicts the dynamics of the information
systems that support the call centers. The firm invests
its budget in new SSIT, which is retired a speci-
fied time later. The effective IT$ per employee is a
ratio of the amount of SSIT available to the num-
ber of call center employees, which is moderated
by the information processing quality. As informa-
tion processing quality increases, the effective IT$
per employee increases for the same investment in
SSIT. The effective IT$ per employee is benchmarked
against industry standards to determine the degree
to which the employees have sufficient IT to facili-
tate their ability to see the information necessary to
address customer needs and act on them. Thus, the
Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
IT Facilitation Index compares the effective IT bud-
get per call center employee to a benchmark level.
The IT Facilitation Index along with the HR Service
Index influence Customer Satisfaction through per-
ceived customer service (see Figure 3).
Figure 3 Stock-Flow Model of External Components
205
The Financials component (see Figure 2) calculates
the financial statements based on the status and flow
of resources in the firm. This component is not shown
in a diagram (see Appendix B for formulations).
3. The Enterprise Systems
This section explores how enterprise systems influ-
ence the management of a complex system, like the
wireless telecommunications firm overviewed above.
As organizations determined that information tech-
nology might facilitate their business, they created
discrete information systems for that specific pur-
pose. As the number of these systems multiplied
and the size of organizations grew, the complexity
of these loosely interfaced systems increased. To link
these systems more tightly, software packages began
to offer integrated systems, such as material require-
ments planning, which provided multiple functional
applications with a common database. (For a system
dynamics study of these early systems, see Morecroft
1983.) These systems eventually incorporated a full
suite of supply chain applications to the manufac-
turing systems. These systems, which began as back
office support, now support the front office across the
supply chain (Davenport 2000). These enterprise sys-
tems are very complex, in their integration of many
functional applications and best practices, as well as
their need to evolve with the organization over time
(Markus and Tanis 2000). This complexity of inter-
connected functional applications and their associated
organizational issues makes successful implementa-
tion of these systems very difficult. Organizations
invest in these complex systems because of the
promise of reduced cycle time, faster information
transactions, improved financial management, ability
to offer electronic commerce, and making tacit pro-
cess knowledge explicit (Davenport 2000, Hitt et al.
2002, Markus and Tanis 2000). It is assumed that these
benefits will convert eventually into higher economic
return (Andersen 1999).
3.1. Simulators of the Firm With and
Without an ES
To allow students to experience the value added by
applying a successfully implemented ES to a firm, we
create two versions of the simulator described in §2 to
represent the following scenarios: the firm with an ES
and the firm without an ES. We consider the simulator
of the firm without an ES first because virtually all
firms start here before installing an ES.
In the simulator of the firm without an ES,
information is maintained in independent (or frag-
mented) information systems corresponding to the
firm resources. Strategic-level performance indica-
tors focus on financials and operations. Financial
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206
Figure 4 Stock-Flow Model of Internal Components
indicators include economic value added (EVA) and
the components of EVA, as well as capital invested,
debt to equity ratio, and current budgetary alloca-
tions. Operational indicators include average monthly
orders, inventory, number of employees, market
share, and number of customer complaints. To emu-
late independent systems, the simulation lags the
information by a three-month delay and provides it
in financial and operational terms.
The simulator of the firm with an ES provides addi-
tional benefits, listed by component in Table 1. In
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
the Financials component, the administrative over-
head is lower with an ES because much of the
data processing is automated (Davenport 2000). In
the Human Resources component, the ES tracks the
relevant skills of thousands of employees, more effi-
ciently identifying those employees requiring train-
ing and scheduling their availability for specific
courses. Additionally, by providing employees with
relevant, integrated information from across the firm,
the ES reduces the skills required to find and process
the required information.
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INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
In the Infrastructure component, the ES’s capi-
tal asset management software monitors system-wide
utilization of the base stations, spreading usage more
evenly over the network and planning infrastruc-
ture preventive maintenance more optimally. This
reduces the overhead for service technicians waiting
to respond to failed systems. In the Service Support-
ing Information Technology (SSIT) component, the ES
integrates information across many areas, giving the
employees the right information they need. The ini-
tial cost of the ES is included in the initial cost of
the SSIT, which is determined by the average cost
of implementing an ES for a firm in this industry
with a given level of revenues (Mabert et al. 2000,
2001; Meta Group 1999). On-going ES expenditures
are determined by the students during simulation. In
the Investment Decisions component, the ES provides
real-time, standardized information that is integrated
across the whole firm.
The benefits associated with an ES listed in Table 1
were derived primarily from the experience of the
expert panel. While specific results for a telecom-
munications firm are difficult to find in the litera-
ture, there are some studies from other industries that
corroborate the benefits in Table 1. Robinson (2005)
provides anecdotal support from several, mostly man-
ufacturing case studies (see also http://www.bpic.
Table 1 Impacts of Enterprise System on a Wireless Telecommunications Firm
207
co.uk/cases.htm). Hitt et al. (2002) contains results
from an extensive study that empirically establishes
that firms that adopt ERP will show greater perfor-
mance. From a survey of business executives, Gefen
and Ragowski (2005) show that it is easier for experts
to perceive the business value of ERP at a specific IT
module level than at an overall enterprise level. This
supports our work because our expert panel was only
required to assess the benefits at the module-specific
level. Overall enterprise value emerges from the sim-
ulation exercise.
Perhaps the most relevant work to our current
study is found in McAfee (2002), which contains a
detailed longitudinal analysis of the benefits derived
from an ERP implementation at a manufacturing firm.
While the specific metrics used by McAfee do not
directly correspond to our metrics, we can make com-
parisons based on broader categorizations. Specifi-
cally, all the percentage improvement metrics in the
last column of Table 1 can be categorized as qual-
ity and reliability of service improvements (train-
ing effectiveness, network quality, average life, and
right information) or labor efficiencies (administra-
tive costs, skill level requirements, technician over-
head). McAfee (2002) has two metrics that correspond
to quality and reliability of service: daily fraction
of orders shipped late and daily standard deviation
 Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
208
of lead time of orders shipped. Across these two
metrics, he reports improvements of anywhere from
34–89 percent which compares to our improvements
in the range of 14–100 percent. McAfee (2002) also
reports sustained head count reductions of 15–53 per-
cent post-ERP which also compares to our 14–50 per-
cent range of improvements.
The output generated by the simulator with the
ES takes advantage of the fact that an ES provides a
more integrated environment for data collection and
information generation (Davenport 2000). Therefore,
wherever possible, the ES version of the simulator
provides more specific and relevant information than
the simulator without ES. Additionally, there is no
information lag or delay in the simulator with the ES.
Table 2 provides a comparison of the type of informa-
tion generated by each simulator.
4. Simulator Validation
To increase confidence that the simulator was work-
ing correctly, we ran it through a full suite of widely
accepted validation tests (Sterman 2000).
Critics of simulator-based theoretical and exper-
imental research suggest that the results (whether
“good” or “bad”) are pre-determined by the equa-
tions in the simulator—a criticism that applies to all
models, simulated, or not. Thus, researchers have the
burden of validating and verifying their models. To
address this criticism, many researchers opt to use
well-known simulators, often accompanying a text-
book and used in the classroom, to show that they
Table 2 Output Information Provided in the Simulators of the Firm With and Without an ES
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
entered no specific biases (Reagan-Cirincione et al.
1991, Segev 1987). There is reason to suspect that their
results are still a function of the particular formulation
of the simulator. With this consideration, our research
makes explicit the simulator to be used, along with
the underlying assumptions (see Appendix B for a
complete listing of the simulator equations). Addi-
tionally, we provide a brief overview (see Table 3) of
the full suite of well-documented and accepted meth-
ods we used to validate and verify the simulator (see
Ritchie-Dunham 2002 for details).
The vast simulation literature provides guidance
on what to validate and how, defining validation as
confirmation that a computer simulator, within the
domain it applies, satisfies the range of accuracy for
the application for which it is intended (Forrester
1961, Sargent 1999). Validation involves three key
components of a simulation: the simulator concept,
the simulator operations, and the simulator data
(Sargent 1999).
Simulator concept validity focuses on the reason-
ableness of the theory and assumptions underlying
the simulator. We applied standard concept valida-
tion tests (see Table 3) from the system dynamics lit-
erature (Sterman 2000). The simulator passed all the
tests, including boundary adequacy, structure assess-
ment, dimensional consistency, parameter assessment,
extreme conditions, integration error, behavior repro-
duction, behavior anomaly, and family membership.
Simulator operational validity centers on the accu-
racy of the simulator’s behavior, for its intended
Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
Table 3 System Dynamics Simulator Validity Tests
purpose. We ran the simulator multiple times with
random policies, measuring the range of possible
responses, and outcomes. The expected performance
of random allocation should be neutral or negative,
since the common belief is that it takes thought to be
successful (i.e., make a profit). The results from apply-
ing these random policy runs to the simulator seemed
reasonable to the expert panel, providing a range of
operational believability in the simulator.
Simulator data validity concentrates on the use of
adequate and correct data. We obtained data for the
initial values of the stocks, parameters affecting the
policy within the flow, initial values of the converters,
and time series with knowledge from the expert panel
and data from two firms in the industry.
5. An Illustration of the Simulation
Exercise
This section illustrates how we used the simula-
tor pedagogically in a master’s-level course. We
conducted the simulation exercise as a two-session
module in a master’s level supply chain manage-
ment class in the Red McCombs School of Business
at the University of Texas at Austin. The class had
209
39 second-year master’s students, mostly MBA, with
the remainder from a joint business/engineering pro-
gram. Each session lasted 75 minutes. In the first
session, the students used the simulator to make
strategic supply chain resource allocation decisions
for the simulated wireless telecommunications firm
every six months over a seven-year period. The sec-
ond session consisted of a discussion of the results
from the simulation exercise and how these results
compared to actual company experiences and aca-
demic research. While the two-session structure for
this exercise may have its downsides (the sessions
were actually on different days), it does have the
advantage of providing time for the instructor to ana-
lyze and organize the simulation results for presenta-
tion and discussion in the second session.
As stated in the Introduction, the educational goal
of the simulation exercise is to have the students expe-
rience the value added of making strategic decisions
in a firm’s service supply chain with and without
an enterprise system. In a pilot test of the simulator,
we found students tended to go straight to the sim-
ulator without reading the case and instructions. To
encourage the students to read the case and instruc-
tions and develop their thoughts first, we had the
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Table 4 A Flow of the Simulation Exercise
students start the experience, as we describe in Table 4,
by opening a web page, where we: (1) used forms
to capture demographic data, (2) presented the case
study materials seen in Appendix C, and (3) gave the
instructions about how to open and run the simula-
tor seen in Appendix D. Then the students clicked a
link that opened the simulator that had been installed
on their computer. These materials were also avail-
able to the students for reference within the simulator.
All materials provided to the students are provided
in the Appendices, including links to the simulation
model, in Appendix E. To promote both focused effort
and exploration, the students were asked: (1) to do
their best to maximize the value they created for
the simulated company, and (2) to explore differ-
ent strategic hypotheses about how to achieve the
best supply-chain-wide consequences. The students
were instructed to ask at any time if they had any
questions.
5.1. First Session
At the beginning of this exercise, all students received
the same information. Specifically, they were given
details about the case and simulation procedures. No
prior preparation on ES was given. Students worked
individually. The students started by entering demo-
graphic information about themselves, for example,
work experience. Several screens in the simulator
walked them through the case description and exercise
instructions (see Appendices C and D). Each student
was randomly assigned to either the with ES or with-
out ES simulation scenarios. After this, they ran the
simulation, in which they were provided the informa-
tion shown in Table 2 and allowed to allocate financial
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
resources to: (1) ordering base stations, (2) hiring
human resources, (3) firing human resources, (4) train-
ing human resources, and (5) acquiring service sup-
porting information technology. The debriefing was
conducted in a subsequent session. A flow of the
entire exercise is given in Table 4. Table 4 also in-
cludes the time it takes per section of the exercise and
the materials required. These times were validated
during the exercise by recording the actual time taken
by each participant in each section.
We tracked the economic value created by each stu-
dent in the simulator using the widely used measure
Market Value Added (MVA) (Ehrbar 1998). Although
each scenario ran for seven simulated years, we used
the MVA at the end of the fifth year as the perfor-
mance measure in order to avoid end game effects.
5.2. Second (Debriefing) Session
The debriefing session opened with a general discus-
sion about the students’ experience with the simu-
lation exercise. From their comments and questions,
we found that the students were most interested in:
(1) mapping the ES impacts on the business flow
of materials and information; (2) understanding the
influence of these ES impacts on organizational per-
formance; (3) understanding how ES influence the
quality of strategic decisions; (4) seeing the whole
firm and its supply chain; (5) focusing on a service
application; and (6) the learning approach (i.e., using
a computer simulation exercise). The issues surfaced
in the discussion we led in the debriefing session and
from comments on written evaluations.
Next, we focused on the student’s experience of
the simulator exercise. What did they notice? What
Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
seemed to influence their performance? What did
they want to achieve and how were they helped or
hampered by the information they were provided?
We have noticed common responses to these ques-
tions. The students typically notice that: (1) it is
harder to create value for the firm than they thought
after reading the case study; (2) delays in investing in
infrastructure slow down market growth; and (3) they
have to invest in infrastructure, human resources, and
training to keep customers satisfied, so they can main-
tain market share with the rising market demand.
They tend to notice that their performance is most
influenced by: (1) when they invest in infrastructure;
(2) the information they have about what is going on;
and (3) how much they sustained their investment in
growth of infrastructure and human resources. When
discussing what they wanted to achieve, two camps
emerge, focusing on either: (1) rapid growth of eco-
nomic value added, at all costs; or (2) sustainable
growth in financials and customer satisfaction. They
typically comment that having what appeared to be
real time data helped see the consequences of their
actions more clearly, while seemingly delayed infor-
mation hampered seeing these consequences. Also,
having integrated information helped them see the
linkages across the supply chain, versus seeing only
what was happening in each function.
We then present the statistical results to compare
their experiences of having or not having an ES. Here
we focus on comparing the experiences and results the
students had in the two groups (“with ES” and “with-
out ES”). Results are presented in the form of sim-
ple descriptive statistics and as a regression analysis.
The regression analysis included fifth year MVA as
the response, the simulator scenario as a predictor,
and a number of other factors controlling for differ-
ent types of work experience amongst the participants
(e.g. years of managerial work experience, and years
of experience in the telecommunications industry). We
explore whether the differences in results between the
groups make sense and why. Note, while it may seem
desirable to have each student do both scenarios (i.e.,
with and without an ES), we have found that it is
not an absolute necessity when this type of post game
comparison of the results is used because patterns are
quite likely to emerge from the aggregated data in
the statistical analysis. A single scenario per student
is not only more economical in terms of time, it also
avoids additional complications such as the need to
correct for a learning effect.
The analysis and comparison of the results segues
nicely into a conversation about the impacts of an
ES on a firm, discussing the impacts of ES on busi-
ness flows of materials and information, organiza-
tional performance, strategic decision making quality,
and seeing the whole firm and its supply chain. Here
211
we introduce a discussion on studies found in the aca-
demic literature and the popular press. This includes
a discussion of the mixed results and possible rea-
sons for these mixed results. This discussion includes
negative ES impacts on business performance, such
as the loss of flexibility, loss of competitive advan-
tage, training difficulties, cost overruns, and other
implementation difficulties (Griffith et al. 1999, Hong
and Kim 2002, Songini 2004). Additionally, we discuss
the results emerging in carefully designed ES-impact
studies (Hitt et al. 2002, McAfee 2002), that find
positive business performance from better systems
integration, standardization of data and processes,
end user visibility across the business enterprise, and
improved decision support functionality. Such a dis-
cussion provides the opportunity to talk about how
hard it is for researchers to assess the impact of ES
on business performance from empirical data sets rel-
ative to a carefully designed simulation experiment.
We also take the opportunity to discuss complexities
not captured by the simulation exercise such as the
learning curve effect documented by McAfee (2002).
6. Concluding Discussion
We have presented a simulation exercise to help stu-
dents assess the impact of a successfully implemented
ES on the service supply chain of a telecommu-
nications firm. We have found that the simulation
experience and the subsequent debriefing provide
a valuable learning experience for both students
and instructors. Our overall experience with such
exercises is that the students find them to be of
great educational value (Anderson and Morrice 2000,
Bates 2002).
The over-arching principles that guided the devel-
opment of this simulation exercise were instructional
brevity and ease of use because we only have a lim-
ited amount of time to cover such topics in our supply
chain and information management courses. From
discussions with other instructors, executive educa-
tion consultants, and textbook authors, we recognized
that this was not unique to our program. The exer-
cise requires a standard PC with Microsoft Windows, an
executable version of the simulator and an isee Player
from ISeeSystems http://www.iseesystems.com/ to
run iThink simulation models (see Appendix E).
As we mentioned, the simulation exercise can be
completed in three to six hours of class time. We
presented a three-hour example of a simulation exer-
cise that works well in our supply chain manage-
ment course. Many other configurations are possible.
For example, with more class time, each student
could participate in multiple simulation scenarios
possibly providing an even richer educational expe-
rience. We have done such things with other simula-
tion exercises. However, when students perform more
 Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
212
than one simulation, care must be taken to account
for learning effects (and the corresponding statistical
biases) if the simulation results are to be used in a
subsequent debriefing session (Anderson and Morrice
2000).
Although the statistical results discussed in §5.2
are rich in educational value and provide a basis
for excellent discussion, much more could be done
with the data collected from the simulation exercise.
The simulator tracks the performance of each student
over time. Analysis of this data provides the opportu-
nity to discuss dynamical decision making behavior
and how this impacts business performance. There is
a strong and growing literature in this area due to
the interest in supply chain dynamics (Sterman 2000).
Based on our experience, we do need to add one word
Appendices
Appendix A: Expert Panel for Simulator
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
of caution at this point. Including a statistical anal-
ysis of the simulation dynamics requires more time,
care, and statistical sophistication on the part of the
instructor and the students (it generally requires some
knowledge of time series analysis). Nevertheless, this
analysis can be valuable because it often helps to
explain the patterns observed in the more “static” sta-
tistical analysis mentioned in §5.2.
Acknowledgments
We thank the AE and three reviewers for feedback that sig-
nificantly increased the teaching value of this paper. Our
research was supported in part by a grant from the SAP
America University Alliance program, a fellowship from the
University of Texas at Austin, software from ISee Systems
(previously High Performance Systems), and funding from
the Institute for Strategic Clarity.
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INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS 213

Appendix B: Simulator Equations

This section provides the equations, in system dynamics format (Sterman 2000) of the simulator used in the experiment as
coded in the software iThink 7.0.1 (ISeeSystems 2001). Due to space considerations, this section does not include the lines of
code for the experimental manipulations used to alter whether the subjects had access to an enterprise system or not. For
a complete description of the simulator with full documentation of each equation, see Ritchie-Dunham (2002).
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Appendix C: On-Line Case Study Description

The students were presented the following case study on-line in the simulator.
 Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
218
Figure 1 A Cell in a Cellular Network
Consultant Report
The map below describes the business cycle for Lejacord
Wireless, in general terms, for the supply chain external and
internal components.
External Components. Following the logic of the external
value chain, in the Customer Satisfaction component, the
firm provides services to customers for a fee. The customer
chooses to continue with the firm, if satisfied with the ser-
vice provided for the price paid. Satisfaction is measured
relative to both the competitive offering in the marketplace
and the customer’s disposable income dedicated to wireless
telephone services. Satisfaction is measured as a utility func-
tion of the price paid for a perceived level of call quality
and customer service. We assume demand for wireless ser-
vices will continue its strong growth, with the customer’s
average disposable income remaining about the same. In
the Customer Base component, relative Customer Satisfac-
tion affects movement of customers between the firm and
the competition.
Internal Components. Following the logic of the internal
value chain, the Financials component takes the revenues
from customers and operating costs from the internal
resources and calculates the financial statements. The
Investment Decisions component applies your capital allo-
cation decisions to technology, human resources, and ser-
vice supporting IT. In the Technology component, suppliers
add base stations to the basic infrastructure, providing
a level of network coverage and quality. The Human
Resources component describes the dynamic of human
resource skills as employees are hired or fired, and as they
are trained or their skills are made obsolete by changing
technologies. The Service Supporting Information Technol-
ogy component depicts the dynamics of the information
systems that support the call centers.
Cellular Network Description
Although different technologies exist, all cellular networks
have the same basic structure. A cell, consisting of a base
INFORMS Transactions on Education 7(3), pp. 201–222, © 2007 INFORMS
Figure 2 A Network of Cells
station (tower) with a certain range of coverage, represents
the basic unit in the cellular network. Figure 1 depicts a
cell with the tower at the center and a circular region of
coverage.
Each cell has a maximum capacity measured in chan-
nels. The number of channels determines the number of
telephone connections that can be handled simultaneously
in a base station’s coverage area. To increase coverage and
capacity, a wireless telecommunications company constructs
a network of cells (see Figure 2). Since adjacent cells overlap
slightly, the cells must be designed so that the same chan-
nels in different cells are not adjacent. Otherwise, different
telephone connections using the same channel in different
cells might interfere with one another.
A Mobile Telephone Switching Office (MTSO) represents
the heart of a cellular network. The MTSO interfaces with
all the base stations in the network through landline cable
connections. Additionally, it connects the network to Public
Switched Telephone Networks (PSTN) such as Southwest-
ern Bell and other cellular networks. Therefore, all tele-
phone traffic between the cellular network and the PSTN or
other networks passes through the MTSO.
A cellular network is constructed in stages by adding
more cells to increase coverage and capacity. The construc-
tion of each cell requires base station installation and con-
nection of the base station to the MTSO through a landline
cable connection. If construction crews are available, the
construction of a cell takes 30 days and costs $300,000. The
cell is not functional until construction is complete.
The subjects were provided the following summary of
the case study, inside the simulator, to refer to during the
experiment.
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Appendix D: On-line Simulator Instructions

The subjects were presented the following instructions about running the simulator on-line. All subjects were given the
same set of instructions.
 Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply Chain
222
Appendix E: Running the Simulation
To run the simulation, download an executable version
of the simulator http://archive.ite.journal.informs.org/
Vol7No3/Ritchie-DunhamMorriceAndersonDyer/
lejacordwireless.exe (also available at http://www.
instituteforstrategicclarity.org/what_is.htm#Cases) and
download and install an isee Player from ISeeSystems http://
www.iseesystems.com/ to run iThink simulation models.
The isee Player can be downloaded for free from http://
www.iseesystems.com/softwares/iseeruntime/default.aspx.
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